Do you dread getting your mail? Do you have fears about how you’re going to pay your bills this month? Are you afraid to answer your phone?
Struggling with financial problems can lead to anxiety, fear, and depression, yet it’s hard to know where to turn when you need help.
If this is how you feel, there is a solution you should consider – Chapter 7 bankruptcy.
If you’re having a hard time paying your bills, it might be helpful for you to investigate the Chapter 7 bankruptcy process. If you qualify for this branch, it can provide you with a fresh start.
As you begin analyzing your options, here are the steps you should know about in the process of a Chapter 7 bankruptcy case.
Complete the Means Test
Meeting with an attorney is a necessity if you’re considering bankruptcy, and one of the first things the lawyer will do is complete a means test.
A means test is a standardized test that all bankruptcy attorneys use. The purpose is to determine if you meet the standards for Chapter 7.
If you pass the test, you meet the criteria. If you don’t pass, you would not be eligible for Chapter 7. However, you could likely use Chapter 13 instead.
The test involves a comparison of your income to the average salary in your area. While you can complete the test on your own, it is more complicated than you think. Therefore, it’s wiser to let a lawyer do it for you.
Analyze Your Debt
If you meet the criteria to use Chapter 7, your lawyer will move on to the next step – analyzing your debt.
Your debt matters a lot in Chapter 7, as it will fall into one of two categories:
In addition to these two categories, you may also have secured debts tied to assets you want to keep. Debts like this fall into a separate category.
The goal of evaluating your debt is to see if Chapter 7 will offer you the relief you need.
If most debts fall into the first category, Chapter 7 is an ideal option. Credit card debt generally qualifies for a discharge. Medical bills and personal loan debts also qualify in most cases.
If most debts fall into the second category, though, then this might not be the best option. Debts that fall in this category include child support, IRS back taxes, and alimony payments.
Consider Your Assets
Chapter 7 bankruptcy is often called the “liquidation branch” of bankruptcy. Because of this, your assets also play a role in deciding whether or not to use this branch.
Liquidating is a term that means selling things to raise cash, which you will use to pay off debt. When you use Chapter 7, you may be required to sell assets you own to raise some money to pay off your debts.
Your lawyer must take a close look at every asset you own to see which ones you can exempt. Exempting assets allows you to keep them if you file for Chapter 7, but you cannot exempt all assets.
There may be assets you have that your lawyer cannot exempt. If so, you could lose these items in your case.
It’s essential to compare the assets you may lose to the forgiveness of debt you may receive, as this provides an effective way to decide whether to file or not.
Take a Credit Counseling Course
Taking a credit counseling course is another critical step in the bankruptcy process. You must complete the class before you file. You will receive a certificate upon completion that you must give to your lawyer.
There is an additional course you must take, but you will take this second course after you file the documents for your case.
Pay the Fees
Bankruptcy attorneys charge two different types of fees for cases, and you must pay both before you file.
The first fee covers the filing fees the court charges. The second fee covers the legal work and time your lawyer spends working on your case.
File the Documents
Once you decide to file for Chapter 7 and complete the necessary requirements, your lawyer will work on creating the bankruptcy documents. There are a lot of required documents for a Chapter 7 case.
When your lawyer completes them, he or she will ask you to sign all of them. Your signature releases the case to a local bankruptcy trustee, and this initiates your case.
After your lawyer submits the documents, he or she will instruct you to complete the second credit counseling course. There may be additional steps you must do at this time, too.
Attend the 341 Hearing
Within a few weeks of filing your documents, you will have a court hearing to attend. Bankruptcy courts call this hearing a 341 Meeting of the Creditors. You must attend this hearing, and your lawyer will accompany you.
The court will encourage your creditors to come, too. Typically, though, most creditors will not attend this court session. The only reason a creditor would attend is to dispute a discharge of a debt that you owe them, and this rarely occurs.
You’ll meet the trustee face-to-face at this hearing and will have to answer any questions he or she may have. The goal of the meeting is for the trustee to find out the information needed to process your case.
The Chapter 7 Bankruptcy Process Ends With a Discharge of Debt
The Chapter 7 bankruptcy process usually takes only six to eight months from start to finish, and it ends with a discharge.
While there are alternative ways to get out of debt, Chapter 7 may offer the most relief to you and your situation.
Before you file, take the time to browse through our site to read more about Chapter 7 bankruptcy and other options for debt relief purposes.
If your gross income is less than the median income for a family of your size, you may be eligible for Chapter 7 bankruptcy. On the other end of the spectrum, if your income is significantly over the median income for a family of your size, you will not be able to file Chapter 7 but may be able to file a chapter 13 bankruptcy.